Uber wants to be the Uber of everything

In Uber’s vision of the future, most people won’t own cars. Riders will hop on electric bikes and scooters for short distances, and summon cars with drivers for longer rides. Takeout dinner will become a vestige, replaced by hand-delivered meals. Garages will empty and parking lots will be ripped up and transformed into grassy parks.

Eventually, robots will rule. Self-driving cars will shuttle people around the roads—and in the air—while drones will make the deliveries. Robotrucks will roam the highways. And Uber will be at the center of it all.

But first, there’s the question of whether Uber will ever make any money.

As Uber gets set to go public next Friday in one of the largest tech IPOs ever, Chief Executive Dara Khosrowshahi is trying to sell Wall Street on his vision that Uber will become the dominant force in all forms of transportation.

That mission is threatened by an onslaught of competition from all sides that has intensified in recent months and caused Uber’s loss to balloon to more than $3.7 billion in the 12 months through March—by far the largest loss ever for a U.S. startup in the year before an IPO, according to S&P Global Market Intelligence.

Startups with deep-pocketed backers are using heavy discounts to overtake Uber’s food delivery services in the U.S., India and Mexico. A well-funded competitor in Latin America has launched an assault on Uber’s ride-hailing business there. In the wake of price wars with competitors, Uber’s once-robust revenue growth has flattened and losses have ballooned.

And Uber’s version of the future is still far from a certainty. Uber’s main markets are in dense cities, but according to some estimates more than 70% of the U.S. population lives in rural or suburban areas—where car ownership tends to be more convenient and cheaper. Ride-hailing has disrupted the taxi-cab industry, but it has also lured people from public transit and helped clog major cities, spurring calls for more regulation that would limit growth.

There is hardly an endless supply of drivers to chauffeur every human around, and it is anyone’s guess when, or if, fully autonomous cars will become a reality. While many young urban workers are going carless, the U.S. car-ownership rate has been ticking up again after falling in the recession, according to Sivak Applied Research.

In the meantime, competitors keep raising large sums of cash–including from Uber’s biggest shareholder, SoftBank Group Corp.—inflaming price wars and making profits stubbornly elusive.

“We’re not going to have predictable profitability,” Mr. Khosrowshahi said at a talk at Stanford University’s business school in November. “We’ll say it to our shareholders and the shareholders can choose.”

“If they want a predictably profitable company–go buy a bank,” he added with a shrug. “Really the long-term is what we’re after.”

Uber executives say privately they believe the renewed bout of cash-burning price wars will ease sooner or later, especially since Uber has shown it will fight back with low prices, say people familiar with the conversations. Mr. Khosrowshahi has been telling investors that the core business works. Uber last year made money on its rides when unrelated costs were excluded, he has said, and there is still healthy growth in the number of rides and meals delivered, even if revenue isn’t growing.

Mr. Khosrowshahi was hired by Uber in August 2017 to be the grownup in the room and ready Uber for the public markets.

His predecessor, Uber co-founder Travis Kalanick, had disrupted entire industries with his hard-charging approach. Mr. Kalanick wanted to break up what he saw as a taxi cartel—and along the way destroy the slew of ride-hailing competitors. He set ever greater goals for expansion—into China, into food delivery, into autonomous cars—and an ethos that money was a critical tool in business battles. An amazingly successful fundraiser, he raised more than $14 billion in equity and debt by mid-2016, far more than any U.S. startup.

The rapid drive for expansion and cutthroat approach to competition accompanied a troubled culture. In 2017, a series of scandals embroiled the company, including allegations of sexual harassment and discrimination, claims from Alphabet Inc. that Uber stole its self-driving secrets and an acknowledgment that it used software to evade local regulators.

Ultimately the board ousted Mr. Kalanick—still one of the largest shareholders today with nearly 9% of the stock—and replaced him with Mr. Khosrowshahi, then the CEO of online travel booking company Expedia Group. Mr. Khosrowshahi was seen as a capable operator who could stabilize a company careening amid the scandals.

The Tehran-born Brown University graduate played the part of diplomat. He restated the company’s cultural values to include the statement: “We do the right thing. Period.” He showed deference to regulators—once viewed with scorn.

Mr. Khosrowshahi soon urged his deputies to stop obsessing about the competition as they did under Mr. Kalanick.

He softened the tone at weekly all-hands meetings previously focused on defeating rivals, and stripped them of charts showing tiny swings in market share, according to several former employees. Competition was here to stay, he often counseled his employees. The focus would now be on the long game.

Mr. Khosrowshahi sought to end fiery price wars where Uber was the smaller player. In Southeast Asia, where Uber and rival Grab had jousted for share of the streets Bangkok, Singapore and Ho Chi Minh City, Mr. Khosrowshahi agreed to sell its operation to Grab for a 27.5% stake in the company there.

He later started talks to buy the main competitor in the Middle East, Careem; Uber struck the deal earlier this year. He scaled back or scrapped other costly endeavors. Self-driving trucks were out, as was a car-leasing unit.

In all, it was a more measured approach at Uber. One former manager described the feeling at Uber under Mr. Khosrowshahi as “optimizing for IPOing” rather than for “global domination.”

“He came in with a little bit more experienced operator’s eye toward what it was going to take to put it on track to get it public,” said Rich Barton, founder and early CEO of Expedia whose tenure briefly overlapped with Mr. Khosrowshahi and who later worked as a partner at Uber investor Benchmark.

At the same time, Mr. Khosrowshahi prepared Uber for life beyond ride-hailing.

He resisted calls inside the company to sell Uber’s self-driving unit, which cost hundreds of millions of dollars a year in capital, people familiar with the matter said. It was partly shuttered in 2018 after one of its cars struck and killed a pedestrian in early 2018. Mr. Khosrowshahi instead brought the cars back to the road, and recently struck a $1 billion deal with an investor group including SoftBank to fund some of the unit’s costly operations

Mr. Khosrowshahi also made a big push into shared electric bikes and scooters and expanded a freight shipping brokerage that has few apparent synergies with passenger rides or meals, but is growing fast.

Meanwhile, the Uber Eats food delivery business started under Mr. Kalanick was sprouting quickly. Mr. Khosrowshahi directed a bigger budget to expand around the world. It emerged as a shining star, so much so that many executives began to think it could ultimately surpass ride-hailing as the company’s main business.

It looked like a profit might even be attainable. Losses were shrinking each quarter as rides and revenue grew. Uber’s operating loss hit $478 million in the first quarter of 2018, narrower than $818 million a year earlier. An important internal metric isolating costs just related to rides flipped from negative to positive. Excluded are costs like stock-based compensation, autonomous driving research and some administrative expenses.

To knit the narrative together for an IPO, Mr. Khosrowshahi began pushing the company as a one-stop shop for disparate categories of transportation. He equates it to Amazon—which went from selling books to become a hub of all things e-commerce—an increasingly common trope in Silicon Valley.

Left unsaid were some significant contrasts between the two companies. Uber has raised far more capital—nearly $20 billion in equity and debt, plus another $9 billion expected in the IPO, compared with Amazon’s less than $3 billion by the time it was 10 years old in 2004.

More critical: the profitability contrast. When Amazon was 10 years old, it completed its second full year as a profitable company—with $588 million in net income—and would stay that way until a small loss in 2012. Uber lost at least $1 billion in the first three months of 2019.

And a decade in, some observers are still skeptical even the basic business makes sense.

“The problem with Uber is, they cannot make money,” said Aswath Damodaran, an NYU corporate finance professor who has been skeptical of Uber’s valuation for years. “Nobody is making money [in ride-hailing]—so it can’t just be a company-specific problem. It is a business model that is not working.”

By the middle of last year, some of Uber’s progress under Mr. Khosrowshahi started to unravel as well-funded competitors moved in.

There are few barriers to enter Uber’s markets, save for capital, say some of its investors. Uber and its rivals all have similar-working apps—ripe conditions for an arms race where riders are lured away with discounted fares and drivers with incentive payments.

And capital is flowing not only to Uber, but also to many of its competitors, from the same source: SoftBank. Led by tech tycoon Masayoshi Son, the Japanese firm and its nearly $100 billion fund has acquired a giant slice of the global ride-hailing and delivery markets, even if meant those companies sometimes fight each other.

The effect was stark in Latin America, a crown jewel of Uber’s business, where competitors had been sparse and margins high. Uber’s old rival in China, Didi, suddenly emerged in the region last year after raising more than $4 billion from SoftBank and other investors. Uber had already yielded to Didi in China, where at its peak, it was losing more than $80 million a week, former executives said. Uber sold its operations in China to Didi in 2016 in exchange for a big stake.

Now, with its newfound SoftBank riches, Didi began fighting Uber in the region considered most profitable, former employees said. It poured money into Brazil to take market share, and then opened up a new front in Mexico. In cities such as Guadalajara, Didi unleashed a torrent of ads to recruit drivers, offering costly guaranteed payments for two or three times what they’d normally earn. Didi promoted rider discounts worth $25 online.

Uber responded with its own discounts, retaking some market share at the cost of smaller revenue and bigger losses.

Latin America went from being Uber’s fastest-growing region to its slowest. Annual growth in revenue fell to 22% in 2018 from 215% the year before.

The fight in the U.S. also heated up late last year when Lyft and Uber both filed for IPOs on the same day. Lyft showered riders with discounts, sparking Uber to do the same. Lyft’s rough entry to the public markets—its stock is down more than 10% from its March IPO—has sparked Uber to temper its ambitions for its own IPO.

In the delivery wars, DoorDash Inc., once thought to be teetering, raised nearly $800 million in capital between March and August 2018, a big chunk from SoftBank.

DoorDash began pummeling U.S. suburbs with salespeople and drivers, rapidly filling its app with more restaurants. Uber Eats, previously second behind GrubHub Holdings Inc. in market share for U.S. on-demand food delivery, fell to third, as DoorDash became the leader in early 2019, according to Edison Trends.

Uber executives wince at DoorDash’s rise. Mr. Khosrowshahi pondered trying to acquire DoorDash early in his tenure when it was valued by investors at less than $1.5 billion, people familiar with the situation said, but never acted on it. DoorDash was last valued at about $7 billion.

Uber faced similar pressures in India. Startups named Swiggy and Zomato have raised a combined $1.7 billion, according to PitchBook, and are spraying the country with discounts and drivers on motorbikes with food backpacks sporting their logos. Zomato pushed a promotion called “No cooking December” that offered 50% off for consumers all month. It repeated the promotion in January.

As competition mounted in India, Eats salespeople there were told they could reduce the 30% cut Uber got from most transactions—sometimes to as little as 15%, a threshold that makes the prospect of profit remote, a former employee said.

An exclusive U.S. deal with McDonald’s—Uber’s biggest U.S. restaurant partner—isn’t exactly a big moneymaker. Uber takes just a 15% to 16% commission of every order, people familiar with the deal said, after it was renegotiated in 2018 from a rate near 20%. Uber has said it discounts some large chain deals as a way to get new customers.

By the end of last year, the damage to Uber’s financials was clear. Revenue from ride-hailing—minus some incentive payments to drivers and other costs—was $2.28 billion in the fourth quarter, barely up from six months earlier. Adjusted revenue for Uber Eats fell 14% in the final three months to $165 million. The internal rides metric that had become positive turned negative again.

The bleeding continued in the first quarter. Uber’s operational loss more than doubled to over $1 billion from a year ago, and its total adjusted revenue has remained virtually flat for three straight quarters, causing anxiety among some former Uber employees who still hold stock awards.

While the barrage of competition has frustrated Uber, multiple investors and former executives say they expect—and hope—it will subside soon. With the billions in IPO money, Uber is signaling it is willing to fight to defend its market share and scare off rivals, these people said.

That placid future may still be a ways off.

On Tuesday, Rappi, Uber’s main foe in food delivery in Latin America had some unwelcome news for Uber. SoftBank was putting up to $1 billion into the company.

Write to Eliot Brown at [email protected]

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